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The “Inflation Reduction Act” (the Act), signed into law by President Biden on 16 August, includes the following key provisions of interest to exempt organizations:

  • a 15% book-income alternative minimum tax (BMT) on corporations with adjusted financial statement income over $1 billion, which generally would apply only to exempt organizations with unrelated trade or business income or unrelated business income from debt-financed property above this threshold; 
  • $370 billion in spending and tax credits and incentives on energy and climate change provisions, including a new provision that, in general, specifically allows exempt organizations to monetize these credits by electing to receive direct payments; and
  • an $80 billion increase in IRS funding for tax enforcement and IRS services, which could lead to increased audit activity, including potentially for exempt organizations the executive compensation excise tax, unrelated business taxable income siloing, and the college and university net investment income tax where final regulations more recently have been issued.

Action item: Exempt organizations should evaluate the potential impact of these provisions, including whether any of the new tax credits and incentives and the direct payment option might benefit them.